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March 27, 2013

At the Canadian Water Network conference
we heard a fascinating presentation by Helmi Ansari, Director, Sustainability and Organizational Capability, PepsiCo Foods on how PepsiCo has reduced its water (and energy and waste) footprint and some of the business challenges specific to the water industry they have encountered.

PepsiCo is known internationally for its water conservation efforts. Last year it won the Stockholm Industry Water Award for its 20 percent improvement in global water efficiency since 2006.

PepsiCo Foods Canada has 8 plants and 16 distribution centres in Canada and about 7000
employees. PepsiCo's sustainability mantra is "leave no trace". The long term vision is to run its business so as to
leave no trace on the planet. The vision is very
aspirational, but I was quite surprised by how much real progress has been made.

It started started in the early 90's when Pepsico created "green teams" in their plants. The teams were responsible for environmental
compliance. Then in the late 90s resource conservation teams were added. Their goals were to reduce
use of natural gas, electricity and water by 30 %, 25 % and 50 %, respectively,
for every unit of food that they made. Then in 2008 an initiative aiming at "net zero" plants was started.

Their interim commitments are aggressive

Improve water
efficiency by 75 %,

Reduce manufacturing fuel usage by half

Reduce fleet
fuel usage by half

No manufacturing plant and distribution centre waste going to landfills

Lead in sustainable packaging innovation

The latest data shows that water efficiency has improved by 46 %. Over 99% of
the waste generated in PepsiCo Foods plants and distribution centres does not
go to landfills. According to Helmi this is the highest in the world for this type of
industry and PepsiCo Canada was the first Pepsico subsidiary to achieve
this objective. Fuel usage is down by a quarter, and
fleet fuel usage is down by a quarter as well. They have implemented heat recovery in every
one of their plants. According to Helmi they have the largest all-electric fleet in the world, and have just completed
the one millionth mile driven in all electric vehicles.

Reusing waste heat

Helmi gave an an example of energy saving through repurposing waste heat. PepsiCo makes SunChips at their plant in Cambridge, Ontario. They had a large boiler burning natural gas to produce steam to cook the chips. After about a three year research and engineering effort, they were able to turn the boiler off because they are now cooking potatoes using waste heat from another process. SunChips for all of Canada are now being
cooked using waste heat that used to go up the stack into the atmosphere.

Net zero plant

Another impressive example is an entire plant that can run virtually off the water and electricity grid. The Frito-Lay plant in Casa Grande, Arizona produces over a 100 million
pounds of food a year. In 2010 the plant received LEED Gold certification, apparently the first for a renovated food production plant. Last year the whole plant was declared "near net zero" meaning it runs 90-100% off the grid, 90-100% of the water is recycled and over 99 % of its waste does not go to a landfill. It has 36 acres of solar cells in an adjacent field; its own membrane bio-reactor waste water treatment plant, with the treated water being reused in the plant, and a large boiler that burns landscape waste from a 75-mile radius, providing all of the plant's steam. According to Helmi it is the only large scale food plant with this level of sustainability.

Net zero using "potato water"

To make 4000 or 5000 pounds of potato chips per hour used to require about 120 gallons of water
per minute. A few years ago recycling technology was introduced which reduced water consumption to 60 gallons per
minute. After investing in more technology this was further reduced to 25 gallons per minute. They are now looking at running the plant with "potato water", using the water in potatoes (potatoes are 80% water) much of which now goes up the stack as steam during the cooking process. They calculate that if they can run their large chip plants entirely on potato water that would save
a billion liters of water per year.

From a water conservation perspective, these are impressive achievements. And you might expect that there were financial benefits that contributed to motivating PepsiCo to improve water efficiency, but surprisingly this is often not the case.

Business benefits ?

A major business benefit of a plant that can run on little or no water, is that it can be located in arid parts of the world, like Phoenix, Arizona, which is near where the Casa Grande plant is located. Most of us would expect that another important business benefit of using less water is that it woud reduce costs. The reality is quite different because of the way the water industry works.

At one of their plants in a small town where PepsiCo was the only
major industry they were able to reduce water consumption by 40%, but
they found that next year their water bill went up 40 %. When they talked to the water utility, they were told that the utility worked on a fixed cost basis, and since the Pepsico plant was the only major industrial water consumer, rates had to be increased otherwise the water utility wouldn't be able to meet its obligations to its suppliers.

There is another problem. When a plant uses a lot of water the effluent is very dilute, but as less water is used the effluent becomes more concentrated. For example, reducing water consumption from 120 gallons/minute to 25 gallons/minute means the plant's effluent becomes roughly five times more concentrated. At one of their plants that managed to reduce water usage by 55-60%, they are now having to pay much more for waste water treatment and their total water-related costs have actually increased.

Pepsico is at a point where as they continue to be more water efficient in North America, they're not seeing a financial benefit. Their most water efficient
plants are in Europe, North, Africa, and Australia where the pricing
structure is very different and they are rewarded for conservng water.

Unsustainable water service delivery model

Don Lowry, past President and CEO of EPCOR Utilities, gave his perspective on what is a pervasive North American water problem, a water service delivery model that is not sustainable. North American industries that use water are caught in
yesterday's paradigm of regulation which does not recognize the total cost of water, from acquisition through to treatment and re-injection. Because water is managed on a fragmented
basis, top water efficiency performers like PepsiCo are being penalized. PepsiCo is being charged at the top rate because the pricing structure was
designed with a view to punish people who have high concentrations. According to Don
breweries are in a similar situation. As they
have become more efficient, their effluent has become more concentrated and as a result their water-related costs have gone up, to the point where many of them are looking at how they can convert their effluent into something else so they can avoid high waste water treatment charges.

Water as a free commodity

According to Don the fundamental problem is that water is treated as a free commodity. The water pricing model means that you are not being charged based on the volume of the commodity you consume, but on the
cost of processing it to convert it to a potable state. If it was priced as other commodities are, such as natural gas or oil, conservation would be very financially rewarding.